Slicing through the silos: about 18 months ago SBC Communications hired Paul Stephens to unite the risk management functions around the far-flung corporation, and to increase control at the managerial level. Stephens' group united investments, including pensions and savings, with all risk management, including corporate risk financing, workers' compensation, and claims

Risk & Insurance, March, 2005 by Gregory DL Morris

Despite being called Baby Bells from their inception, the telecommunications companies created from the breakup of AT&T retained several major hallmarks of a hidebound, old-economy sector that includes a large capital-heavy infrastructures and a huge unionized workforces active in multiple states.

But despite the legacy of a monopoly, at least one Ma Bell successor, SBC Communications, has taken an ambitious, aggressive, and comprehensive approach to risk management that continues to evolve.

The major change took place about 18 months ago when Paul Stephens was brought in to the newly-created post of vice president for Financial Investment and Risk Management. The strategy was twofold. It served to unite, or at least coordinate, risk management functions around the far-flung corporation. It also served to increase control at the managerial level. Those might seem like antithetical goals, but Stephens and most of the senior executives embraced the philosophy, and it has largely worked.

The creation of Stephens' group united investments, including pensions and savings, with all risk management, including corporate risk financing, workers' compensation, and claims.

"The biggest difference," says Stephens, "is that claims were not part of risk management--either claims against the company, or the company's own claims against outside parties." Claims now belong in the risk management fold, under the responsibility of Ron Walton, SBC's director of risk management.

Both Stephens and Walton, who had been with SBC in risk management for several years when his new boss came into the group, work closely at the firm's corporate headquarters in San Antonio, Texas.

"Baby," Bell or otherwise, is also a misnomer for a company with $41 billion in revenues in 2003, 167,000 employees, 54 million local access lines, and 25 million wireless customers through its 60 percent holding in Cingular. On the corporate side SBC is a Fortune 50 stock, is included as a component of the Dow Jones Industrial Average, and in January announced its intention to buy AT&T, one of corporate America's most storied brands.

Structurally SBC has been among the most acquisitive of the AT&T spinoffs, acquiring in one quick burst Pacific Telesis in 1997, Southern New England Telecommunications the next year, and Ameritech the following year. Little wonder, then, that Stephens inherited a convoluted risk-management structure.

"What was called 'Risk Management Services,' had bounced around several places in the controller's office," says Walton. "The group was not with the rest of risk management reporting to the treasurer. General liability claims were coming through the door from our own wire lines. We have a large service fleet, so there were automobile claims, third-party claims similar to workers' comp. There was a great potential for subrogation."

The silos did not necessarily represent turf battles so much as a legacy of a complex organization formed before risk management was recognized as a senior-executive level responsibility. Further, both Stephens and Walton stress that most of the disparate operations were fairly well conducted.

"Communication was very important," says Stephens. "And we needed to stabilize liability claims. We also needed people with more of an insurance background. Clearly there was a big opportunity with me coming in to take that other group and stop them from looking like they were running regional shops. Loads varied from region to region, but the idea was to shift the load to a national approach."

Surprisingly, there was little resistance, indicating that wise minds at every level of the organization were happy to take on a more comprehensive and integrated approach to risk management. As can be imagined, there was some unwillingness by the controller's group about the shift of one group to treasury.

"There was a good, healthy discussion," says Stephens, "but results are what counts. And even with the force count reductions, we are still achieving results." That has left the door open to examine similar consolidations, or at least closer coordination with other related operations. "There are still considerable opportunities for discussions where things can be changed to a more direct tie. For example, the real estate safety group is not part of our operation." Adds Walton, "No one understands the logic of that."

Stephens is quick to stress that he is operating with a mandate and seeks the active involvement of all risk managers throughout the organization. "Ron and I see the important issue as the opportunity to have more direct discussions and to improve communication and action to prevent accidents from happening in the first place. The object is not to make this into a turf battle. We could have more drastic reorganizations, but nothing is planned at this moment."

TARGETING DISABILITY

Disability is another important area where the new risk management team is seeing closer coordination. At present the group handling that area is within human resources, while workers' comp is in risk management.